Chapter 9 Servicing Fund Shareholders Viewing recommendations for Windows: Use the Arial TrueType font and set your screen area to at least 800 by 600

Chapter 9

Servicing Fund Shareholders

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Service: The Customer Perspective

• What is important to you when doing business with a mutual fund sponsor?

• What do you expect from that company when you call or walk into one of their offices?

• What are some of the key customer service satisfiers that you might require from a mutual fund sponsor?


Mutual Fund Customer Service Satisfiers

• Typical high priority services– Accurate transaction processing

– Knowledgeable representatives to turn to for help

– Full array of products

• Other desired services– Easy-to-read communications and statements

– Effective problem resolution processes

– Easy ways of doing business


Organizational Position of a Transfer Agent


Role of the Transfer Agent

• Process accurately all shareholder transactions• Handle all customer service inquiries and

requests• Send out transaction confirmations, periodic

account statements, and tax summaries/reports• Maintain books/accounts to ensure proper share

allocation• Ensure that transactions are in compliance

with regulations• Resolve customer problems


Example of New Account Process Flow


Organization of a Transfer Agent

• Shareholder services segment– Performs front-office operations and interacts

with customers– Responds to written correspondence

• Transaction processing segment– Ensures accurate account transactions– Posts dividend payments– Reconciles cash daily


Organization of a Transfer Agent (cont.)

• Operations support segment– Maintains accurate records of customer accounts

and transactions– Sorts and distributes mail– Produces confirmations and periodic statements

• Fund administration segment– Provides audit support– Bills and tracks fees between the fund and the

transfer agent– Monitors blue sky registration fees


Requirements for Running a Successful Call Center

• Effective human resource strategy

• Good initial and ongoing training programs

• Strong representative tools and support

• Strong call center management

• Service measurement, review, and response to results


Technology and Shareholder Servicing Trends

• Typical technological aids to phone reps include– Intelligent workstations that allow access to complete

account information and provide instant answers to many questions

– “Imaged” or scanned customer documents that allow the phone rep to call up and view documents on-line

– Advances in voice recognition and automated systems may help free phone reps’ time to respond to more complex queries


Technology and Shareholder Servicing Trends (cont.)

• Internet– Has transformed the delivery of service to fund

shareholders– Has begun to merge with other consumer media, so

phone reps may have an interactive chat with a customer; moving toward voice and video capabilities

– May be utilized for more transactions as security advances are made and older investors become more comfortable with this technology


Technology and Shareholder Servicing Trends (cont.)

• Other servicing trends include

– Programs to reduce mailing/production costs (e.g., installing high-speed sorters)

– Moving transfer agent operations to lower cost locations


Decisions for Directors

• Internal versus external transfer agent—factors to consider– Costs of in-house support versus external

vendor– Quality of customer service– Size of the mutual fund complex– Nature of the sales arrangements


Decisions for Directors (cont.)

• Quality control– Directors must monitor performance and establish

acceptable level– Objective measures and customer satisfaction

• Pricing– Must agree on structure of billing arrangement– Should fairly compensate transfer agent, while fairly

allocating costs among shareholders


Transfer AgentPricing Strategies

• Per account charges– “Flat fee” is charged per account – May depend on factors such as account size,

mandatory reports, and ancillary services

• Transaction charges– Based on the number of purchases, redemptions,

exchanges, etc.

• Basis point charges– Based on the average amount of assets per account


Transfer AgentPricing Strategies (cont.)

• Combinations/Other strategies– Relatively low flat fee per account plus

transactional charges– Relatively low flat fee per account plus basis

point charge– “Variable” or “allocated” methods


Pros and Cons ofPricing Strategies

Pros Cons Per account charge

Matches costs that are fixed for each account (e.g., monthly and quarterly statements, 1099 forms); simple

Not sensitive to levels of customer activity or account size

Transaction charge

Matches costs that vary with activity (e.g., phone calls, trade confirms)

Does not match with fixed account costs; administratively burdensome to count

Basis points on assets

Proxy for transactions: higher fees for larger accounts (which tend to demand more service); relatively stable total

Risks overcharging for large accounts and undercharging for small accounts


Shareholder-Paid versus Fund-Paid Fees

• Shareholder-paid fees– May be appropriate for services specific to an

investor– May be used to influence customer behavior

and shift costs from the pool to the individual customer

– May be used to force individuals to compensate the pool for costs of excessive service demands

– Examples include: IRA custodial fee, small account fee, exchange fee, redemption fee


Shareholder-Paid versus Fund-Paid Fees (cont.)

• Fund-paid fees

– Most transfer agent fees are paid by the fund

– Shareholders implicitly agree to pay for “average” level of service demanded by the fund’s investor pool


Summary

• Role of the transfer agent is extremely important to the success of a mutual fund complex

• Transfer agent must process transactions, handle inquiries, and send reports—promptly and accurately

• Transfer agents are organized into phone centers and transaction processing units which rely on advanced technologies

• Fund directors must make key decisions about the transfer agent structure, its services, and its fees


Case Study: Global Investment Company Redemption Fees as of 6/30/97

Category Fund Redemption Fees Domestic Equity Emerging Growth 0.75% <90 Days Large-Cap Stock None Small-Cap Stock 1.50% <90 Days S&P 500 Index 0.50% <6 Months International Equities

Diversified International

None

Emerging Markets 1.5% <90 Days Europe 1.0% <90 Days Japan Fund None Latin America 1.5% <90 Days High Yield High Income Bond 1.5% <1 Year

Documents

Chapter 9 Servicing Fund Shareholders Viewing recommendations for Windows: Use the Arial TrueType font and set your screen area to at least 800 by 600